One of the notions surrounding the Treasury auction cycle is that the bond trading community tends to build in a “concession” ahead of any given auction. That’s a fancy word to say “rates go higher.” Clearly, if that was always the case, speculators could reliably bet on it and, over time, it would get back to being less of a certainty. Nonetheless, it is still a fairly reliable occurrence to see some selling ahead of an auction, albeit without predictable timing or magnitude. The practical reason for this is that traders will buy $42bln in 10yr notes this afternoon, and that’s $42bln less in buying demand available before the auction. Lower demand = lower prices = higher yields.
All of the above assumes we’re talking about a level of movement that actually matters, and today’s movement really doesn’t. So far, today’s narrow range is fully contained by yesterday’s range (i.e. today is an “inside day”). Moreover, it’s a very small uptick in yields that follows 5 straight days of gains. This is one of those rare times that the future actually becomes less and less random. The more consecutive trading sessions bonds string together in the same direction, the more likely it becomes to see at least some sort of a push back in the other direction–even if only small and temporary.
Credit: Source link
